Baltic Dry Index

I think this is a nice follow up post to the IMF's Global Forecast which is quite ugly. For newer members, about 3-4 months ago we noticed commodities significantly underperforming and I theorized at the time that there was big trouble in China. A few weeks later we saw Chinese manufacturing PMI which was in contraction and a week later Chinese Services also in contraction, commodities had given away problems in China long before they were officially printed. China went from fighting inflation on a tightening cycle to a cut which was coincidentally timed with other major central banks taking a whole range of actions to improve market liquidity, but in retrospect the PBoC's cut seems to have been coincidental in timing as they not only have contraction, but a huge housing bubble, they are moving toward stagflation with the latest cut.

So we started watching the volatile Baltic Dry Index, the daily rate shippers charge to move dry goods overseas. The normally volatile BDI has actually been trending very well, albeit down, which indicates a lack of demand for dry goods from commodities to I-Phones. In other words, it is a good measure of the global economy. Several weeks ago, the last time we looked at the BDI it was close to making a 3 year to date new low, close, but not quite there.

Here's the updated charts for the Baltic Dry Index

 This 1 year chart shows the smooth decline in a very volatile index.

This 3 year to date chart shows the BDI has made a new 3 year low, from 1014 in 2009 to a current reading of 841. You may remember 2009 we were still in recession, these current readings are worse and stock prices are elevated on average by about 58% (using the SPX), most of that due to the misleading F_E_D intervention and POMO regime that put billions of virtually risk free money in the hands of Primary Dealers such as Goldman Sachs and the now defunct MF Global, which in turn invested in equities, in most cases an hour or so after the POMO was completed as the PD's flipped bonds they bought from the Treasury to the F_E_D in some cases only holding them for a week and in the process, making billion of dollars.

The implications of all of this are rather ominous, I don't think I need to elaborate much on the subject.